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1
What is one significance of the DuPont equation?
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It allows a company to compare itself to companies in unrelated
... [Show More] industries.
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It tells a company whether its share price is correctly valued.
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It allows a company to increase its stock price.
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It tells a company how well it uses investment funds to generate earnings growth.
CONCEPT
The DuPont Equation
2
Consider the following information:
Total current assets $62,301
Deferred income taxes $1,345
Inventories $5,664
Prepaid expenses $2,034
Other assets $2,906
Total current liabilities $29,748
What is the quick ratio?
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2.09
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1.90
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1.82
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2.02
CONCEPT
Liquidity Ratios
3
By appropriately preparing a forecast budget, a company can avoid __________.
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insolvency
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inventory shortages
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regulation
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a net loss
CONCEPT
Building a Cash Budget
4
Xander is looking for ways to reduce his non-operating expenses to improve his company's overall financial performance, so he consults his most recent income statement.
Which of the following should he focus on?
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Wages
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Amortization
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Income taxes
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Depreciation
CONCEPT
The Income Statement
5
Select the true statement about the concept of agency cost.
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An agency cost is a cost to an organization that is inversely related to the organization's assumption of risk.
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An agency cost is one that is incurred when an agent's actions deviate from the principal's interests.
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An agency cost is one that is incurred when bondholders raise the interest rate on a bond.
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An agency cost is a variable cost to an organization that has yet to be approved by the principal.
CONCEPT
Agency and Conflicts of Interest
6
In the United States, the role of corporate governance is to maximize __________.
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fundamental value and shareholder value
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market value and stakeholder value
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market value and shareholder value
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shareholder value and stakeholder value
CONCEPT
Goals of Financial Management
7
Which of the following would explain a company’s day sales outstanding ratio rising from 32 to 41.25?
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The company's accounts receivable has decreased while the average inventory has remained constant.
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The company's accounts receivable has decreased while the average inventory has increased.
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The company's accounts receivable has decreased while total sales has increased.
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The company's accounts receivable has remained constant while total sales has decreased.
CONCEPT
Asset Management Ratios
8
If a balance sheet shows $4 million in current assets, $7 million in long-term assets, $2 million in current liabilities and $6 million in long-term liabilities, what is the company's net working capital?
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$2 million
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$4 million
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$3 million
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$1 million
CONCEPT
The Balance Sheet
9
What must be forecasted first in order to prepare the pro forma income statement?
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Cost of goods sold
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Expenses
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Net income
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Sales
CONCEPT
Forecasting the Income Statement
10
A software company issues shares of stock to the public for the first time in order to raise funds for a planned product expansion.
What financial market is the company participating in?
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Secondary money market
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Secondary capital market
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Primary money market
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Primary capital market
CONCEPT
Financial Markets
11
The primary factor behind all of finance is __________.
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money
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equity
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time
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debt
CONCEPT
Introducing Finance
12
How are assets typically organized on a balance sheet?
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In order of liquidity, with more liquid assets first.
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In order of liquidity, with least liquid assets first.
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In order of value, with most valuable assets first.
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In order of value, with least valuable assets first.
CONCEPT
Standardizing Financial Statements
13
Haley is expanding her tax preparation business and wants to reorganize it. She wants to better protect her personal assets from any liabilities associated with the business, and she wants to pay a lower tax rate on her business income. She also believes her business will benefit from oversight from a board of directors.
Which form of business structure would clearly meet Haley's needs?
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Partnership
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Sole proprietorship
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Corporation
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Limited liability partnership
CONCEPT
Types of Business Organizations
14
What was one outcome of the Sarbanes-Oxley Act of 2002?
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CEOs are prohibited from earning bonuses tied to company stock performance.
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Top management of U.S. companies must now individually and personally certify the accuracy of financial information.
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Expenses related to corporate compliance are now tax-deductible.
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Public corporations are no longer required to use independent auditors to review their accounting practices.
CONCEPT
Corporate Governance
15
The pro forma balance sheet shows how the __________ resulting from a strategic plan will be financed.
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AFN
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sales forecast
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inventory
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equity
CONCEPT
Forecasting the Balance Sheet
16
Under GAAP, how would the sale of company-owned land be accounted for on the statement of cash flows?
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As a decrease in cash flow from financing
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As an increase in cash flow from operations
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As an increase in cash flow from investment
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As a decrease in cash flow from operations
CONCEPT
The Statement of Cash Flows
17
Which method of depreciation calculation gives a company an equal tax benefit from one year to the next?
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Declining balance
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Activity-based
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Straight line
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Salvage
CONCEPT
Tax Considerations
18
Consider the price to book ratios of the following companies:
• Company A: 5.45
• Company B: 14.30
• Company C: 10.08
• Company D: 19.62
Which company do investors believe will create the most value from its assets?
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Company D
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Company B
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Company A
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Company C
CONCEPT
Market Value Ratios
19
If net income is $90 million and total assets are $480 million, then the ROA is __________.
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18.75%
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incalculable without gross profit data
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incalculable without EBIT data
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25.00%
CONCEPT
Profitability Ratios
20
Which market is intended to benefit from the recent trend of microfinance?
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Venture capitalists
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Corporations
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Impoverished individuals
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Foreign governments
CONCEPT
Trends and Issues in Finance
21
Ratios that measure a company's ability to manage its long-term debt are _________.
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efficiency ratios
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profitability ratios
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leverage ratios
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liquidity ratios
CONCEPT
Overview of Ratio Analysis
22
Betina is trying to convince a buyer to purchase her company. The buyer wants to know what the company's overall financial condition was on December 31, 2018.
What type of financial statement should Betina provide?
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Balance sheet
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Cash flow statement
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Income statement
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Statement of changes in equity
CONCEPT
Introducing Financial Statements
23
If Company A has a lower debt ratio than Company B, then Company A is likely to have __________ than Company B.
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less financial flexibility
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more total assets
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a higher level of financial risk
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a greater ability to borrow
CONCEPT
Debt Management Ratios
24
What is a question that should be asked about accounts payable when forecasting?
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What is the cash conversion cycle?
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How much product on hand is too much?
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How will our cash inflows be affected?
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How quickly can we replenish goods?
CONCEPT
Analyzing Forecasts
25
Capacity planning answers the question "__________"
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How will we decide which direction to go?
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How will we finance it?
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How can we be most efficient?
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What will our revenue be?
CONCEPT
Financial Forecasting
26
For which company can trend analysis be most useful?
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An established hotel company that has made very few changes to its business model
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An insurance company that has recently been subject to new accounting laws
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A manufacturing company that has recently expanded into mining as well
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A ride-sharing company whose business model has been rapidly adapting to market conditions
CONCEPT
Using Financial Ratios for Analysis
27
Why is it good for businesses when personal values and company values align?
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Because companies are more likely to follow the law.
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Because employees are more likely to have moral sensitivity.
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Because managers can avoid having to deal with ethical questions.
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Because employees are more likely to uphold company values.
CONCEPT
Ethics: An Overview
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